Max Borders

Healthcare Prices! What a Novel Idea

Posted at the Opinion Zone. A sliver:

These guys [out-of-pocket docs] are lowering prices, increasing quality and refusing the bureaucratic, ballooning, cost-shifting third-party system the government has created here in the US. I pay $40 for a visit and I shift $0 to you. PPO/HMO folks pay a $30 copay and shift $100 or more to the risk pool (and wonder why premiums go up). Perverse.

Healthcare Reform: Cost the Symptom, Government the Disease

Grudgingly, pundits on the left - including Ezra Klein - are starting to admit that Obamacare 2.0 "can't control costs."

The base insight is that providers -- doctors and hospitals, mainly -- have most of the leverage in the battle with insurers. If there's one hospital in town, then either your insurer cuts a deal with them, or you get another insurer. What you don't do is get another hospital.

The problem [of doctor and hospital "leverage"] is exacerbated by the fact that the insurer doesn't really care to negotiate lower prices. They tried that in the late ’90s, and everyone hated them for it. It turns out that workers don't feel the cost of their health care because they think employers pay it, and employers don't care that much about cost increases because they take it out of wages. Neither group likes premium increases, but they don't really care. But everyone screams if you tighten networks and review care. As such, providers have pretty free rein. That's part of why we pay so much more than any other country per unit of care.

Additionally, health-care reform is going to great lengths to avoid touching providers. Hospitals and doctors are simply too powerful to seriously anger. Insurers aren't. 

Candid, but only part of the picture. Klein ends up concluding all this makes the "original public option" essential, as if such a beast would have some magical, para-market properties. His desire to "tighten networks and review care" is, of course, doublespeak for state price controls and rationing a la mammogate. But I'm still happy to see acknowledgement of a) the cost symptom and b) this bill's inability to treat it.    

The cost problem is the big healthcare reform problem. And if Obamacare 2.0 isn't going to solve this problem, what does it amount to? Little more than a special interest bonanza loaded with mandates (public option or no). Klein, closing his eyes to the possibility that a freer market may be the only cure for current healthcare distortions, fails to diagnose these real problems. He focuses instead on an expensive government band-aid -- the public option -- and a rather septic one. Cost spirals are always a symptom of a government meddling. But in the timeless logic of the left, more government (i.e. more of the disease) will do the trick.  

Take Klein's first point above about hospital and doctor "leverage". He points to an urban institute paper, which figures out the symptom of provider leverage, but fails to diagnose the diseases: Certificates of Need. These state policies give hospitals considerable anti-competitive power--because it's pure, government-created protectionism. And, of course, doctors are a licensed, protectionist guild. Instead of abolishing bad regs that give undue power to providers, Klein and the Urban Institute want a government panacea.

Atypically, they underplay insurer "leverage". But why? Health insurers do enjoy undue power due to government-created in-state monopolies. That doesn't make them evil, just protected. And yes, it's also easier for a monopoly to jack up a premium than negotiate a lower rate with a provider. But the reason we have dominant health insurers is still due to a lack of interstate competition and a crazy-quilt of state insurance regs (i.e.: government pathologies). Insurance monopolists use state mandates to create barriers to entry for market entrants in that area. Premiums go up. 

The price of goods and services also gets distorted because of our preoccupation with third-party payment versus out of pocket. As David Goldhill points out so eloquently here, people who pay copays aren't bargain shoppers, they're cost-shifters. But if they were buying more plans on the individual market, they might not want Cadillac Cost-shifting Plans. (They'd be much more likely to choose HSAs and HDHPs, which control costs better than any other form because they're patient-driven plans.) 

Providers and insurers - though they "negotiate" rates - are sort of like industrial colluders dividing the spoils of the economic distortion. These spoils come from the system of government design. And when consumers don't feel the full impact of their purchasing decisions, they don't shop. Prices go up. Premiums go up. We might gripe about premiums. But we'll go on shifting costs of Viagra and Nexium onto the risk pool, or paying for a $2000 CT scan that should probably only cost $400 if we had the incentive to shop. These system, and it's distortions, are government induced.

The distorting tax treatment of health insurance that encourages people to take employer health plans, makes things even worse, not only because it subsidizes wealthy employed people on the backs of the marginally employed, but it reduces competition and means people lose their insurance when they lose their jobs. From our WWII job-based, third-party-payer system, to the fact that I can't legally buy a cheaper policy in Idaho... government is the problem.

This healthcare debate shows that posturing against "corporate interests" is so often a convenient moralism to pepper on a weak argument. In fact, almost every major element of Obamacare works in the service of Big Pharma, Big Doctor, or Big Insurance. A 2000-plus page bill can only be filled with more distortions and more rent-seeking opportunities. It cannot control costs. It's refreshing, at least, to see the left is starting to admit this much, at least. 

A Separation of Science and State?

Here's my debut blog post for the Washington Examiner's Opinion Zone. I'll be doing more for them in the coming year.

University of North Carolina School of the Arts - Full Paper

UNCSA: Should it be self-sustaining? Full paper here. (I even quote Bastiat.) Thanks to Jane Shaw and the Pope Center for Higher Education Policy for giving me the opportunity to write this report.

Panarchy

The original essay on Panarchy:

My panacea, if you will allow this term, is simply free competition in the business of government. Everyone has the right to look after his own welfare as he sees it and to obtain security under his own conditions. On the other hand, this means progress through contest between governments forced to compete for followers. True worldwide liberty is that which is not forced upon anyone, being to each just what he wants of it; it neither suppresses nor deceives, and is always subject to a right of appeal. To bring about such a liberty, there would be no need to give up either national traditions or family ties, no need to learn to think in a new language, no need at all to cross rivers or seas, carrying the bones of one's ancestors.It is simply a matter of declaration before one's local political commission, for one to move from republic to monarchy, from representative government to autocracy, from oligarchy to democracy, or even to Mr. Proudhon's anarchy - without even the necessity of removing one's dressing gown or slippers. 

So simple and so brilliant. Where has this been all of our lives? (Thanks to Gian Piero de Bellis and Adam Knott.)

Olson, Organizations and the Red Queen Effect

I have another guest post over at A Thousand Nations. Here's a sliver:

If people like Shirky are right, it’s getting cheaper both to monitor and to organize against special interest groups—at least select ones. I’m not saying we’re anywhere near being able to fight them at parity. Perhaps we’ll never be. Nor are we likely to see the immediate effects of our new distributed, organization tools. But we may soon be equipped at least to slow the process of “demosclerosis.” We may already be. And as long as our collective productivity gains outpace the growth of the deadweight state, we’ll be okay—at least in some less-than-savory utilitarian sense. We’re also going to be better equipped to drive creative destruction and out-compete the government in some of its historic monopoly areas, such as education. (We might even unleash the forces of social entrepreneurship if you believe folks like Michael Strong.)

My optimism ends there, however. Read the whole post.

Destroying Wealth: One Special Interest Group at a Time

This is an awesome lesson bout the political economy of lobbying.         

  

 

If you want even more excruciating detail about the vortex that is Washington, DC, check out Jonathan Rauch's book Government's End. When you think about the fact that lobbyists are non-productively bidding for one competitor to put another competitor out of business (by distorting the market through legislation), your understanding of the true magnitude of the waste just piles up like one steaming turd atop another. You'll never think about the right to redress grievances the same way again. (See also classics of Public Choice Theory.)

Limiting Government Through Incentives

Okay. I’m no economist. Nor am I an accountant. But the economist or accountant who comes up with the way to integrate the following concept might do wonders for reining in an ever-expanding Leviathan in Washington (and 50 little Leviathans, nation wide).

Here’s the basic idea: give government employees incentives at every level and in every department to reduce the amount of money they spend by giving them a percentage of the money they save in their paychecks. This, theoretically, would shrink government and allow government employees to get bonuses for being better stewards of our tax dollars—rather than simply looking for ways to keep growing. Sounds simple, right? 

Of course, real life is always more complicated. One problem with this idea is that you can always get your masters to raise the baseline. For example: if you told bureaucrats in The Department of Deadweight Loss that they would get 1 percent of the savings in the annual budget – distributed quarterly – then these folks would have an incentive to lobby the appropriate budget writers and legislators to raise the baseline for the following fiscal year. This would allow everyone to grow government while supposedly “saving money” from year to year – i.e. missing the point (and gaming the system). Therefore, you’d have to peg the baseline to something besides percentage savings in the annual budget. 

But to what? There may be an obvious answer. And this is where a bean counter or economist might be able to help. In any case, the basic idea is to incentivize those internal beneficiaries of government largesse to consume fewer resources. Hopefully, this post will spark something that smarter people can run with. 

(Note: Another problem is that budgets are determined by legislators. Might they also get an incentive to save/shrink?)

The Metaphors Talk

The Locke foundation has my socio-economic metaphors talk up here. If you prefer to read the whole paper, find that here. 

Politics and the "Transmutation of Means to Ends"

Here's an interesting post by Arnold Kling, who's commenting on a paper by Dan Klein. Basically these guys are thinking about why Progressives, Libertarians and Conservatives are disposed the way they are. Both make some really interesting points. First, because human beings are meaning-seeking creatures, progressives find meaning in the state, which symbolizes their aspirations for a kind of collective good. This is no less a cognitive shortcut than the conservatives' inclination to contract with a "spirit-lord," a term that made me chuckle. A quick, dirty and probably unfair characterization might be: leftists worship Government and conservatives worship God. 

When it comes to progressives, I'd want to include some discussion about an excessively pronounced inborn guilt/envy/indignation disposition, which I call the Stone Age Trinity and that I elaborate on here. (I'll return to this in a moment...)

But Kling's post (as well as this NY Times Magazine piece by Steven Pinker) reminds me of that little bit of meta-ethics philosopher W.V.O. Quine did when he was alive. Quine said that ethics was basically a "transmutation of means to ends" and had little else to say on matters of right and wrong. He was a philosophical naturalist to be sure. And Quine thought ethical dispositions usually amounted to cultural mores that had been transmitted, via nature or nurture, from a time when the means were critical to a people's survival or flourishing. For example, the natural consequences of sex with a sibling was increased likelihood of birth defects and harm to the clan. While that taboo exists today, we can imagine scenarios in which that risk would be close to zero (birth control, prophylactics, etc.) The basic idea is that the moral value, the taboo, (or whatever) is what gets turned into the object of moral reverence or of tabooization after running the gauntlet of life and the world--often in very different contexts. They are epiphenomena of learning how to survive in the real world. But the world changes and sometimes the moralisms hang around anyway.

Back to my point about the Stone Age Trinity: On the paleolithic steppe, it made much more economic sense - i.e. was "rational" - for members of a clan to engage in reciprocal altruism, which is a fancy way of saying to share and share alike. But this only works as a rule when a group is pretty small (less than about 150) and food stuffs rot in a couple of days. As populations grew, our market economies evolved and gains from trade could be realized across greater distances, share and share alike became a rule that worked less and less well. Trade generated more prosperity. But both the evolved instinct and the cultural moralisms of sharing have hung around. None of this is to say that sharing is BAD. But government bureaucracies engaged in forced "sharing" over a population of millions just doesn't work very well for a whole host of reasons--from the government failure a la public choice theory to concerns about competing values like individual liberty. While the instinct of sharing may be satisfied by sanctimony in the opinion pages or voting booth, it works better closer to home and community. Knowledge is local. And so, frankly, are the folks tethered to one's heart. But the means of surviving on the paleolithic steppe have been "transmuted" into a political end. That's why politics will not be without struggle for a very long time. And that's why I find it interesting that "social justice" is little more than cave man instincts with fancy verbiage woven around it.

In any case, these are just a couple points of confusion I'd toss into the mix as we try to unpack why people think the way they do politically.

(Addendum: Not to be too harsh, but one of the less interesting (but popular) theories about political disposition - from a couple of leftists - is summed up here. Weiler and Hetherington purport to measure and aggregate the degree to which people are "authoritarian"--which is an unfortunate and inapt term for one's propensity to be stark, simple-minded and Manichean (i.e. seeing the world in black and white or good and evil). They then compare the authoritarian scores to party affiliations and conclude that a) the country is more stratified today than it was a couple of decades ago and b) Republicans are way more "authoritarian". I'll leave this mostly for the reader to consider. But I'd say there are much richer theories out there about political dispositions than one that views the political landscape through such a monochrome filter as relative "authoritarian-ness". For two guys who claim to be on the Blue Team of Nuance, they seem pretty darned reductionist to me. (Social science as scientism rears its head again.))